“Recent investments in inventory, marketing and payroll are beginning to move the needle,” said Roger Rawlins, CEO, on a conference call with analysts. “And with the launch of our new loyalty program, a few weeks ago, we were intent on further driving this positive momentum.”

In the quarter ended May 5, earnings on an adjusted basis rose 21.5 percent to $31.5 million, or 39 cents per share, from $25.5 million, or 32 cents, a year ago. Analysts on average were expecting 37 cents a share.

The latest period included a loss of 4 cents per share from residual Ebuys operations. The company exited Ebuys at the end of the first quarter.

Reported net income came to $24.3 million, or 30 cents per share, and included after-tax charges totaling $7.2 million, or 9 cents per share, related to the exit of Ebuys, foreign exchange losses and transaction costs related to the acquisition of Town Shoes. The year-ago net was $22.8 million, or 28 cents a share.

Total revenue increased 2.9 percent to $712 million, including $5.6 million from residual Ebuys operations.

The top-line growth was led by a 36 percent lift in online sales. Both regular and clearance categories comp positively. Transactions at the DSW segment increased in the low-single digits with significant gains in new customer activity. Average dollar sale was slightly lower than last year due to a higher clearance mix and marketing activity.

For the fourth quarter in a row, footwear comps increased in the low-single digits, driven by women’s footwear.

Among categories, athleisure continued to drive positive comps, despite tough comparisons. Cooler temperatures drove strong boot sales, while delaying the start of sandal season. Weather also negatively affected DSW’s Power 35 locations, given their regional concentration. Nevertheless, sandals still posted a positive low single-digit comp, with a healthy pick up from the arrival of warmer conditions. Improving demand was also seen for women’s fashion footwear outside boots and sandals.

Men’s footwear was equal to last year and is still expected to return to growth in 2018. Accessories turned positive during the quarter with reworked assortments.

Kids was added to 109 locations in Q1 and is expected to reach an additional 94 locations in Q2. A full roll-out is set to be completed by the back-to-school season. Given the solid results seen in kids, DSW has begun to carry a higher-end stock position and broaden assortments in the category. The chain is also finding ways to add kids’ footwear while preserving the balance of its existing offering.

“With DSW Kids establishing a nationwide presence this year, we will be positioned to market the addition of kids at a national level,” said Jared Poff, CFO, on the call. “DSW remains significantly under penetrated in kids and these results give us confidence and optimism for this category’s long term prospects.”

Gross margins improved 40 basis points to 28.9 percent due to the wind down of Ebuys. Gross margin at the DSW segment was modestly lower at 29.6 percent versus 29.9 percent a year ago as higher shipping costs related to the robust online growth. Improvements in sourcing depth and cross-channel fulfillment offset incremental markdowns tied to the unseasonable weather conditions.

SG&A increased 6 percent and gained 60 basis points as a percent of sales, to 23.7 percent. Investments in marketing to reach new customers and drive awareness for its new loyalty program led to a high-single digit increase in new rewards members and accelerated transaction activity from new non-rewards customers to some of the highest levels DSW has seen in the last few quarters.

Inventory on a per square foot was slightly below last year. On a two-year basis, inventory per square foot declined 3 percent

DSW maintained its full-year outlook for adjusted EPS of $1.52 to $1.67 per share and low single digit comp growth.

On the call, Rawlins discussed a number of strategic initiatives. On merchandising, he noted that the company is seeing the benefit of a “more productive inventory position” after two years of destocking.

“Our key item program drove a higher regular price mix and gross margin improvements. Our inventory depth enabled us to post meaningful improvements across all categories, with footwear posting a comp increase for the fourth consecutive quarter,” said Rawlins. “We were particularly pleased to see comps for the men’s and accessory categories turn positive during the quarter and athleisure sustained its momentum and expand DSW’s presence in the athletic space.”

DSW is also starting to consolidate its vendor base and expects that to lead to sourcing savings as DSW becomes a “more meaningful account” to fewer vendors.

“We will continue to hold our vendors accountable to our shared goal of profitable growth and we believe these changes will contribute to a healthier marketplace,” said Rawlins. “These actions are part of our journey to evolve our model and gain control of our destiny with the right brand partnerships and the strategic opportunities to capitalize on DSW Inc.’s 1000 points of distribution.”

On marketing, increased investments in customer-facing marketing is driving digital engagement, rewards enrolment and new customer acquisition. He noted that DSW moving up the ranks as one of the top five retailers in Piper Jaffray’s annual team survey.

The launch in May of DSW VIP, representing the biggest update in its rewards program in the last ten years, is expected to “fuel more energy in the DSW brand and improve customer engagement.” While early, the updated program is driving higher traffic, redemption activity and rewards enrollment. Rewards members accounts for over 90 percent of DSW’s sales.

At the store level, DSW is piloting a new labor model that takes into account that 40 percent to 50 percent of online orders are now being filled by stores. The model better matches associates between back-of-house and customer-facing tasks as well as provides more coverage during peak hours. Rawlins said, “We expect improved role clarity to help our teams drive better customer engagement and in-store conversion.”

Online, DSW will look to play up its “vast assortment” and new loyalty program while eventually shifting focus to making it easier for customers to shop regardless of channel through enhanced personalization. Some stores are also featuring “a new fixture package that brings to life digital’s ability to amplify merchandising stories and introduce new retail experiences.”

Among new service offerings, the response to shoe repair at some locations continues to be positive. With the pickup in sandal selling, demand at its Nail Bar has accelerated at its test location and a second location will be added later this year.

Rawlins said, “In summary, our first quarter results demonstrate that we are on track with our goals this year. We are capitalizing on our financial strength to tap the powerful synergy between our supply chain network and digital platforms and stay ahead of our consumers’ needs. We will leverage the opportunities to reach more customers with our growing retail portfolio and we are committed to create long term value and drive sustainable profitable growth.”